Japan inflation will drive savers back to the stock market, says exchange chief

Inflation is pushing Japan into a new era that could lift equities by spurring more households to move savings out of low-yielding bank deposits, the head of the country’s stock exchange operator has said. 

Hiromi Yamaji, president of the JPX group that controls the Tokyo and Osaka exchanges, said he expected many Japanese to stop sitting on so much cash — the country’s households have amassed ¥1 quadrillion ($7tn) in bank savings — and look to stock markets for better returns in response to rising living costs.

“They can feel inflation coming . . . cash was king when there was deflation. But if inflation is coming, they have to be prepared,” said Yamaji in an interview.

Exchange traded funds would probably be an initial way into equities for many, said Yamaji, who became head of JPX this year and is trying to make the stock market more attractive to individual investors who have long viewed it as too risky.

Many Japanese have been deeply sceptical of holding equities since the bursting of the country’s economic bubble more than three decades ago, while years of stagnant prices meant households could overlook the fact that bank deposits were earning almost no returns.

“They did not care about it, even if it did not generate any returns,” Yamaji said. “But once inflation starts . . . they have to be prepared to hedge against inflation and it’s very obvious that deposits do not give you a good enough return to hedge.”

Japan’s core measure of consumer inflation, excluding fresh food and energy, rose more than 4 per cent in April for the first time in nearly 42 years.

With prices rising more broadly, market expectations are also building up that Kazuo Ueda, the Bank of Japan’s new governor, will gradually shift towards unwinding decades of ultra-loose monetary policy.

At the same time Japan’s stock markets have returned to levels not seen in 33 years. The broad Topix index has risen 14.5 per cent this year, which investors say is partly due to efforts by JPX under Yamaji to push companies harder on improving their capital efficiency and raising their corporate value.

However, the increase has been driven mainly by foreign funds, while domestic Japanese investors — particularly retail — have been far more cautious. 

Yamaji suggested Japan’s attitudes to investing in the stock market would also change as the generation that lost money in the 1980s bubble reached old age.

“There was a generation with the very bad experience of the bursting of the bubble, but it was 35 years ago, but the number of people who had that bad experience is shrinking,” he said, while a younger generation of investors is less cautious about diverting more savings into risk assets.

Since 2014 about 17mn Japanese have opened a tax-protected investment product known as Nisa. The stock market has gained roughly 50 per cent since then, leaving a younger generation of investors sitting on significant unrealised gains, Yamaji said.

From next year, the government will significantly broaden the investment scheme, allowing investors to buy stocks of up to ¥3.6mn a year using the Nisa account and spurring expectations of an acceleration in the shift from cash savings to equity investments.